US Mortgages For Canadians Buying Florida US Real Estate

Obtaining a US mortgage is not easy, but it is not impossible.  It takes time, hard work, and is a complex process.  If you are thinking of obtaining a US mortgage for your US real estate property purchase in Florida, you need to start early as the process takes a lot longer in the US than in Canada (up to 60 days for a US mortgage!).

US mortgages can often require a deposit of 60% or more, which defeats the purpose of the US mortgage in the first place. US mortgage rates are very low, but it’s still difficult for Canadians to obtain a US mortgage as a financing option.  The main reason it is difficult to obtain a US mortgage is that US banks do not take a deep look at the Canadian credit history of Canadians, as a result, without looking at this, it makes it difficult for them to approve your credit based on your US credit information, which is likely nothing.

Obtaining a US mortgage requires documentation preparation (far more than in Canada), lots of time (process is shorter in Canada), and is more costly (cheaper in Canada).

Summary of US Mortgage requirements:

• Title Insurance.  Banks want to know that the title is clear on the US property.  Without clear title, you cannot obtain a mortgage.

• Appraisal.  An appraisal is needed before you can obtain a US mortgage because banks want to estimate and value the US property.  They will loan you an amount based on the total value of the real estate.

• Property Survey.  This may be required to establish the legal boundaries of the real estate property.

• Insurance.  Depending on the location of the real estate property, you will need to obtain hurricane and flood insurance.  Florida can be prone to hurricanes and the lenders want to ensure that the homeowner and the lender is protected.

 

Steps for Canadians to try to obtain a US mortgage?

Step 1 – Apply for a US Mortgage Loan

It is time to pick up the phone and to start making calls with a mortgage loan officer.  This can be to a mortgage banker or a mortgage broker.  A mortgage banker, after reviewing the information you have provided them, can give you an initial indication if you will receive a US mortgage.  Whereas, a US mortgage broker, like Canadian brokers, need to send out this information to various lenders, which will provide a reply to the mortgage broker.  This process seems similar to that in Canada.

When you meet a mortgage loan officer, they will discuss the following:

• Financing Needs
• Product Options
• Explain how different payment options affect your payments, interest rates, and principal reductions

 

Tip: You may want to consider going with a local specialist that knows the area and is familiar with any potential issues that may arrise due to the location or banks.

After discussing the details of your application, you will receive a Good Faith Estimate and disclosures that will outline the costs associated with obtaining the US mortgage loan and also the loan structure.  Please ensure you obtain the Good Faith Estimate in writing and keep this for your records.   You will also receive a truth-in-lending statement, which will outline the costs of the loan, APR, and other terms.  If you are receiving an adjustable rate mortgage, you will receive disclosure information about ARM’s as required by Federal Law.  Lastly, you will receive a guide to settlement costs booklet, outlining the settlement process and associated costs.

When you apply for a US mortgage, you will be asked to complete a  Uniform Residential Loan Application.  The purpose of this document is to gather information about your total net assets, job and income, and credit history.

This information will ask for the following:

• Drivers Licence
• Social Security
• Telephone Number
• Address of Relatives
• Information on current mortgage company, monthly mortgage payment information, and landlord information
• Employment information, including position, salary, and position at work
• Tax returns and pay stubs
• Total assets and liabilities
• List of bank accounts and details
• List of investments
• Car details
• Estimated current residential home value
• Life insurance policy details
• Any liability and loan information

 

Items to Submit to US Mortgage Officer

In order to meet the lender’s requirement, you have to submit the following files:

1. Letters of references from the creditor (bank loan, credit union, mortgage loans)

2. A letter from your employer and possibly an employment contract

3. Personal financial information for the last 2 years

4. Canadian income tax returns for the last  2 years

5. Bank statements for the last 2 years

6. A letter of reference from at least 2 banks and must include your main bank

7. International credit report

8. Property appraisal report

 

 

Step 2 – Processing

After you put together the paperwork for your US mortgage application, a third party appraisal is required and title work will be ordered to appraise the value of the property and to verify current lien holders on the property.  Only after this is completed can your US mortgage officer secure mortgage interest rates for your for the product that you chose.

 

Step 3 – Underwriting

The underwriting department will receive your US mortgage loan application and they are the party that will approve your loan.  Once your loan is approved by the underwriting department to close, you will be notified to prepare closing documents.  Once the closing documents are prepared they will be sent to the location where the closing will take place.  The loan officer will also provide you a commitment letter, which you will have to accept at this time.

 

Step 4 – Closing

In the U.S., the standard practice is for the Canadian borrower to attend the closing .  This can be negotiated in advance and is something every Canadian should consider before they obtain a US mortgage.  The other options to close for US mortgage financing is either to complete this by post mail or by power of attorney (POA).

If you decide to attend the meeting, it will usually last about one hour.  It involves the buyer, seller, Realtor for the buyer, Realtor for the seller, mortgage lender representative, attorneys, if any, and the closing agent.

The purpose of the closing is to finally establish ownership of the real estate property that you are purchasing.  All documents are reviewed, signed, and ownership is then transferred.

The closing paperwork is extremely extensive and requires legal signatures of the borrowers.  It also contains all the details of the mortgage, mortgage options, terms, fees, and all other disclosure details.

If you are a Canadian and you are unable to attend your mortgage closing, the first thing you must do is notify your mortgage loan officer by verbally (and also in writing so you can have a copy).  You must also notify an attorney.  The attorney will work with the mortgage loan officer to establish a process to close the property and close the US mortgage on your real estate property.  Establishing this process can take time and can often result in extra fees.

The closing process involves the following:

• Closing agent to review the settlement sheet with both the buyer and the seller.  Any remaining questions are answered.
• The settlement sheet is signed by both parties.
• Loan documents need to be signed by the individual obtaining the loan.  All evidence provided to the lender will be on hand and you will need to indicate that all that information provided was truthful.
• You will need to pay for the closing costs and agreed upon funds due.  The lender will also provide a cheque for the loan amount.  both of these funds go to the closing agent to fund the purchase of the property.
• The closing agent will provide the mortgage information and title information to the government office to register it.
• After the mortgage and title is officially recorded, this is when funds are transferred by the closing agent and ownership of the property has now officially changed hands.

As a buyer, you will receive the following information from the closing process.  It is important you review these documents and keep them safe.

• HUD-1 Settlement Sheet.  The closing agent will provide a sheet to both the buyer and the seller.  This sheet will contain all information of the costs and services provided.  As a buyer, you should ask to receive this information in advance of the closing day, so you can know upfront the true costs of buying your property.

 

• TIL (truth-in-lending) statement.  This document is typically received three business days after applying for the loan.  This outlines the cost, APR, points, and other costs of the loan.

 

• Mortgage Promissory Note.   This is a legal document outlining what you owe the lender – a promise to pay document.  This outlines your responsibilities to pay the lender, on time, the amount, dates, and penalties if you do not.

 

• Affidavits.  This may be required to prove you are buying the home as a principal residence if you indicated so.

 

• Deed.  The seller will sign the deed at closing.  This indicates the transfer of property ownership from the seller to the buyer.

 

 

 

Tip: Speak to your real estate agent and also your mortgage loan officer in advance and ask them if they can help you work with an attorney that specializes in working with Canadians – they can also help you obtain and receive a discount on the fees.

 

 

Major Differences between Canadian and US Mortgages that Canadians Need to Be Aware Of

As a Canadian buying US real estate, you need to be aware of the major differences in Canadian mortgages and US mortgages.

 

US Mortgage Pricing.  The pricing of US Mortgage Rates is extremely different in Canada compared to the US. In Canada, it is quite normal to negotiate Canadian mortgage rates from your lender.  This haggling and negotiating process is normal and can help you obtain a discount from the posted mortgage rate in Canada.  However, in the U.S., the US mortgage market controls the ultimate rate you will receive.  Consider it much more free market than in Canada.  The US mortgage rate that is offered to you is the best ultimate mortgage rate you can receive on that day for the product you chose.  There is no amount of negotiating that can change this.

 

US Mortgage Closing Time Frame:  The time frame for closing on a US mortgage is materially different from that in Canada.  In Canada, if you have a hard working mortgage broker and lender, a property purchase and mortgage can be closed in 3 to 6 business days if everyone works hard and all the paperwork is in order.  However, in the U.S., the time frame is considerably longer and can take up to 3 to 5 weeks to process the US mortgage application.

 

US Mortgage Costs: The costs of a US mortgage are much different than that in Canada.  The main reason for this is because the US has a decentralized structure, which historically is the way the US operates the US mortgage market.  Appraisers are independent contractors and are not bank employees.

 

US Mortgage Closing Cost Fees

 

The closing cost with a mortgage in Florida will include the following:

The Lender’s Loan Origination Fee: This fee covers the expenses in setting-up and processing the home loan for the Canadian buying US real estate. The loan origination fee may be a percentage of the mortgage amount or can be an outlined fee. You need to inquire about this fee to fully understand the total cost.

Discount Points: This option is available to the home buyer to pay “points” to lower the ultimate interest rate at which the US mortgage loan will be paid back.  Each point equals 1.00 percent of the mortgage amount. For example: on a $100,000 loan, 1.00 point would equal $1,000. You need to compare the interest rate offered to you with 1 point versus an interest rate without any points and check if there is a major difference in the monthly payment before you pay the points.  Speak to your mortgage lender directly about this.

Appraisal Fee:  The US home will need to be appraised and inspected and this appraisal fee covers this work.  This cost can be included in the closing cost or it can be a separate payment that is required at the time of the loan application.

Tip: You may want to ask the seller to consider chipping in to pay for the appraisal fee.

Credit Report Fee: The mortgage lender will utilize a credit report to determine your creditworthiness.  This is usually a fee that is charged upfront because it is needed at the beginning stages of the US mortgage process.  As a Canadian, you may need to provide them an equifax report as you will likely not have a US credit history, which they are accustomed too.

Odd Days of Interest Payment: The buyer is responsible to pay for the interest on the mortgage loan to cover the time from the closing date to the end of the month.  If you obtain the property on the 15th of the month, you need to cover the interest cost of the mortgage from the 15th until the end of the month.

Escrow Account: To pay for all your real estate taxes and insurance, an escrow account will need to be setup for this payment at a future point in time.  The state of Florida laws require the actual amount collected be enough to pay the full annual amount on the actual due date, plus two months as a “safety cushion”. These amounts are not charged interest nor do they earn interest.  Any over payment can be returned to you.

Recording Cost.  This fee is charged by the local counties to ensure the US mortgage is registered in government administrative records.

 

Summary of Closing Costs

• Your Attorney’s Fee
• Loan Origination Fee
• Fee for Title Insurance
• Appraisal Fee for Mortgage
• Credit Report Fee
• Mortgage Underwriting Fee
• Discount Points Fee
• Escrow Fees
• Insurance Fee
• Inspection Fee
• Mortgage Insurance Premium
• Homeowner’s Insurance to be paid for one year
• Interim Interest from ownership until the end of the month

 

US Mortgages Require Homeowners Insurance

US mortgage lenders will require you to obtain homeowner’s insurance, which protects the mortgage lender and you, the buyer, from loss in the event the home is destroyed or damaged.  The good thing about homeowners insurance is that it depends on the real estate home and not on if you are a resident or a Canadian buying US real estate.  The insurance rate is based on several factors such as a the location of the real estate property, age of property, construction details, and several other factors.

Each state has its own requirements when it comes to buying homeowners insurance.  As you would expect, earthquake coverage is managed differently in states like California compared to New York and Florida.  Since Florida is prone to hurricanes, each Florida homeowner or real estate buyer needs to be aware of the coverage options that they are paying for when buying homeowners insurance.  According to the Florida Statutes, insurers need to give “reasonable discounts” for “mitigation or measures” to protect your home against hurricanes.

 

Summary for Canadians requiring a US Mortgage for their Florida US  real estate property purchase

 

• US Mortgages take longer to close than Canadian mortgages.  Usually 3 – 5 Weeks Total to Close whereas in Canada it is only a few days to a week.

 

• US Mortgage Rates are locked in after the loan application is signed and at discretion of borrower.  In Canada, the mortgage rate will be locked at time of first quote up to a certain number of days.

 

• US Closing Costs can be up to 2 – 3% of the real estate purchase price.  In Canada, closing costs for a Canadian mortgage are about 0 to 1% of the real estate purchase price.

 

• No Pre-Payment Penalty for some US mortgage products.   Canadian mortgages usually have a pre-payment penalty during the closing period.

 

• US Mortgage rate options are available for more motions such as for fixed rates on 15 or 30 year term & amortization. In Canada, there are generally no fixed options for 15 and 30 year amortization terms

 

• A.R.M.’s (V.R.M.) US mortgages cannot be converted into fixed rate.

 

• US Mortgage documentation submission requirements are more expensive than in Canada, which can be done more simply and more cost effectively.  This is one of the reasons a US mortgage is more expensive.

 

• No tax deduction(s) for mortgage interest paid by Canadians on Florida property* (speak to a tax specialist about this)

 

• Mortgages Are Not: Switchable, Assumable, Portable.  In Canada, they can be.